Sterling Chemicals mulls process change or closure as Force Majeure continues at Acrylonitrile facility

06-May-05

Sterling Chemicals, Inc. had earlier declared force majeure under its contracts related to it's acrylonitrile businesses due to unavailability of propylene, and had shut down its acrylonitrile facilities and sodium cyanide unit. This force majeure was expected to continue until adequate supplies of propylene become available. However, inability of the company to secure adequate supplies of propylene has made the restart of its acrylonitrile facilities and related derivate units in Texas City, Texas very difficult. Sterling's acrylonitrile and derivatives businesses have sustained losses to the tune of US$28 million during 2004 and US$36 million during 2003. Faced with recurring losses and the continuous difficulties over the last few years in securing adequate supplies of propylene, the Company has shortlisted two options for the future: One option involves major process changes to its acrylonitrile facilities in an effort to improve the cost competitiveness of the business. Permanent shut down its least cost efficient acrylonitrile reactor is being considered, feasible if the Company can secure sufficient quantities of propylene. This would lead to a reduction in its overall capacity for acrylonitrile from approx 335,000 million tpa to 250,000 million tpa. The other option is the permanent closure of its acrylonitrile and derivatives facilities, resulting in estimated one-time costs of US$20 million-US$30 million. In the event of a permanent closure of these facilities, the Company would seek alternative uses of the space and infrastructure that is currently associated with the acrylonitrile and derivate operations.